Deferred payment letter of credit / Deferred payment credit

The deferred payment letter of credit of letter of credit is the version of the letter of credit used in international trade that can be used to secure sales on credit. It increases security and provides financing benefits if such a letter of credit is accompanied by a bill of exchange.

A letter of credit is basically a cash payment: the seller submits the required flawless documents to the bank by the specified date, and the bank pays the consideration. However, it can also be used well to secure sales with a letter of credit by agreeing with our business partner on a letter of credit promising later payment. 

In a deferred payment letter of credit, the opening bank does not promise payment to the seller at the same time as the presentation of the documents, but at the same time as the term of the company credit. For the seller, this solution means a lot of security because of the letter of letter of credit. At the same time, you can receive the consideration for your goods only at the later payment date specified in the letter of credit.

There is a way to make the deferred payment letter of credit even safer and more favorable from the point of view of financing the export transaction. In this case, we attach a bank acceptance with the same maturity date to the deferred payment letter of letter of credit, and we sell our goods against so-called rembours credit.

Technically, this means that the opening (and, if applicable, the confirming) bank undertakes in the letter of credit to accept the foreign bill of exchange issued by the exporter and drawee to the bank, accompanied by impeccable documents. In this case, the documents are honored with a bank acceptance (and, of course, with the payment of the bill of exchange at the specified later date). 

A deferred payment letter of credit secured by a bill of exchange makes sales on credit doubly secure. On the one hand, the bank the letter of credit promises to pay in its own name alongside the buyer, and this promise can also be confirmed by a certifying bank. On the other hand, with the strictness of the bill of exchange law, the payment obligation of the bank accepting the bill of exchange can be enforced even in a bill of exchange lawsuit (which is mostly only a theoretical possibility, since the seller has already been convinced of the creditworthiness of the bank that opened the letter of credit).

Exporters do not choose this type of letter of credit primarily for reasons of increased security, but rather for financing reasons. The bill of exchange accepted by the bank can be easily discounted, so the exporter can obtain the consideration for his goods long before the bill of exchange (and the letter of credit) expires, and the discount rate can be calculated already in the offer price.